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Investment banks help public and private institutions raise capital. Although many investment banksmanage money for institutions and wealthy individuals, they are very different from "banks" thatmost people are familiar with. Investment banks do not have retail locations where they acceptdeposits and create accounts for the average consumer.

Instead investment banks cater to companies and institutions, mainly by finding them sources offunding. Their services include arranging equity and debt offerings, providing credit facilities and"selling" securities to investors. They also advise institutions on a wide range of transactions,notably mergers and acquisitions, asset management and brokerage services. The clients of aninvestment bank benefit from the bank's access to investors, expertise in valuing assets andexperience in executing transactions..

Investment Banking

The Investment banking division (IBD) helps its clients to raise funds through debt and equityoffering. This includes raising funds through an Initial Public Offering (IPO), offering a creditfacility with the bank, selling shares to sophisticated investors through private placements, or

issuing and selling bonds on behalf of the client. The division functions as an intermediary and earnsits revenue by charging a fee. Clients benefit from the bank's access to investors, expertise invaluing assets and experience in executing these transactions.

Often the bank will buy shares directly from the company and try to sell it at a higher price toinvestors. This process is known as underwriting, and is riskier than simply advising clients -- sincethe bank assumes the risk of the stock selling for a lower price than it had expected. Underwritingan offering requires the division to work with Sales & Trading to sell shares to the public markets.

The division also earns revenue by advising clients on mergers and acquisitions (M&A), which involvesevaluating the target company, negotiation the terms of the agreement and arranging the financing

for the deal.

The investment banking division is normally divided into industry coverage and product coveragegroups. Industry coverage groups focus on a specific industry such as retail, oil, or technology.Product coverage groups focus on financial products, such as mergers and acquisitions, leveragedfinance and equity.

Functions of an Investment Bank

Asset Management

The asset management division manages money for institutions, such as mutual funds, and wealthyindividuals. The business is divided into three sub-divisions.

Fund management: This division manages a number of funds, each with a different focus andstrategy. For example: the asset management division may have three funds, one focused on privateequity investments in emerging markets, another dealing with arbitrage trades, and yet anotherthat buys and holds corporate debt. Clients can choose to place their money with either of thesefunds. The bank earns revenue by charging a fee for assets under management, and sometimes bycharging a commission based on returns.

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Private Banking and Wealth Management: The division manages banking activities of extremelywealthy individuals. Apart from providing regular banking services, such as check clearing, thedivision also advisesuch individuals on tax strategy and investments. They work closely with otherparts of the asset management division to provide a comprehensive service, e.g. work with fundmanagement to invest in different strategies.

Prime Brokerage: The division deals with professional asset managers, such as mutual funds andhedge funds. Their services include executing trades on behalf of these clients, holding custody oftheir assets, and advising them on potential opportunities. For example: When Berkshire Hathaway(BRK) needs to buy a certain security from public markets, it uses a prime broker to buy and holdthe security on its behalf. The division works closely with the Sales and Trading division.Additionally, the prime brokerage can also help its clients (hedge funds) to find investors.

Industry Analysis

Investment bankers had been optimistic last year about their prospects for 2011. As the year

draws to a close, its evident the optimism couldnt have been more misplaced, and bankers arekeeping fingers crossed for 2012.

The revenue of investment banks in India has declined to $515 million in 2011, down 30% from the$741 million generated last year, according to data from Dealogic Holdings Plc., a UK-basedresearch organization that tracks deals.

Equity capital market transactions slumped 67.26% to $9.76 billion this year and debt capitalmarket volume fell 13% to $39.48 billion.

Mergers and acquisitions (M&As) have dropped to $43.9 billion year-to-date, a 28% decrease from

the record $60.7 billion announced in the same period of 2010.

Capital and credit markets have not been as good as last year, especially in the second half, onaccount of high volatility, said Sughosh Moharikar, head of M&As at Deutsche Equities India.

The Bombay Stock Exchanges benchmark Sensex has lost 23.26% this year, when foreign investorssold half a billion dollars worth of Indian shares, and the rupee has fallen 17% since July.

Economic growth is forecast by the government to slow to a pace of 7.5-7.75% from earlierprojections of 9%.

The euro zone debt crisis and US economic woes have also cast their shadow on the country.

Domestic M&A volume stands at $13.8 billion this year, down significantly from the record $45.9billon announced in 2010, Dealogic data shows.

This is also the lowest level since 2005, when domestic deal volume was $12 billion. Inbound M&Avolume has reached $30 billion, slightly behind the record volume of $34 billion announced in 2007.

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Some of the deals were affected due to more r igorous diligence sought by the investor. With theevolving macro and micro economic issues, performance has tended to deviate from projectionsprovided by the company at the start of the deal, said Sailesh Rao, partner-transaction advisoryservices, Ernst & Young Pvt. Ltd.

According to data from Bloomberg, the average deal size has shrunk from $6.2 million to $4.05million.While not many bulge-bracket deals have taken place this year, mid-size investment bankshave announced a large number of transactions.

Outbound deal volume has shrunk to $10 billion this year, a 61% drop compared to last year.

Foreign investment banks that had set up shop on an optimistic note in the past couple of yearshave started to lay off people in India.

For instance, Nomura Financial Advisory Services India Pvt. Ltd, which had hired its senior team forinvestment banking only in the middle of last year, asked at least three senior people last month to

leave.

Barclays Capital, the investment banking arm of Barclays Bank Plc., which was looking to set up anequities team at the beginning of the year, realigned its India business, reducing the strength of itsinvestment banking team.

Other investment banks that have laid off people include Daiwa Capital Markets India Pvt. Ltd, Bankof America-Merrill Lynch and BNP Paribas SA.

Bonuses at Indian investment banks, including Kotak Mahindra Capital Co. Ltd and JM FinancialConsultants Pvt. Ltd, have taken a hit this year. Since the mainstay of the old Indian investment

banks is equity capital markets, the outlook for 2012 does not appear to be positive.

While it is uncertain how 2012 will pan out for the global and Indian economy, bankers expect thedeadlock in deal making to ease next year.

The desperation of promoters to raise capital will peak next year and we expect the deals to getexecuted at more rational valuations, Rao of E&Y said.

List of Top 10 Investment Banks of India

To name a few of the top most investment banks of India are:

Bank of America:

This American bank, being one of the leading investment banks in the world, has even got its

branches in the Republic of India. Operating in the country since the year 1964, this bank provides

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a comprehensive range of financial solutions and products to some of the top most corporates,

multinationals and financial institutions in the nation.

Barclays Capital:

This investment banking company is a division of the Barclays Bank Plc. Focused on meeting the

needs of the Indian corporates, especially in the Small and Medium Enterprise (S. M. E.) sector as

well as the companies of the country who have got a flair for international growth, this bank offers

a range of cash management and investment products.

B. N. P. Paribas:

B. N. P. Paribas started operating in India from the year 1860 from the city of Kolkata in the name

of C. N. E. P. (Comptoir National d'Escompte de Paris). Presently, they serve many domestic and

international banks with their corporate banking necessities.

Citi Bank:

Operating in India for over 106 years, this is among the famous financial institutions of Citi Group.

Besides offering different services related to investment banking, this investment bank provides

varied banking services with a capital investment of about US $ 3.1 billion, which is spread all over

the world.

Deutsche Bank:

Being a leader of investment banking in the global market, this bank has got a profitable cum strong

client franchise in the private sector. They offer their unparalleled services to the financial sector

in both the national and the international domain.

J. P. Morgan:

This leading bank in the world set up their operations in the country during the year 1930. This

famous foreign bank specializes in the business of investment advisory services as well as wholesale

investment banking.